Investment Plan 2011 - OPERS

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Ohio Public Employees Retirement System 2011 Annual Investment Plan Risk Management OPERS is committed ―to provide secure retirement benefits to our members‖ and believes that an effective and integrated investment risk management program is a fundamental part of that mission. Just as risk is an inseparable and essential part of investing, OPERS views risk management as an integral part of investment management. OPERS Investments group strives to develop and uphold a ―risk-conscious culture‖ where risk owners and the responsibility to manage risk exist at every level of the investment organization. The reason for this is that risk management is believed to be most effective when it is incorporated throughout the decision making process - not just after the fact. Risk management is not risk elimination. OPERS views effective risk management as a dynamic process of identifying, assessing and prioritizing exposures, developing and implementing policies, programs and procedures to control, manage or mitigate risks, as well as monitoring and reporting of risks and activities. To be most successful, the risk management process must continually evolve and adapt to meet the changing environment and organizational needs. Objectives OPERS seeks to enhance risk-adjusted returns – either through reducing losses or costs, minimizing the possibility of losses, or enhancing returns, and to ensure the prudent management of investment-related risks in accordance with OPERS policies and industry best-practices. The two components include (1) the proactive effort to maximize risk adjusted returns and minimize losses and (2) due diligence, risk governance or associated ―prudent investor‖ activities which should be part of any investment management operation. Approach Many approaches and organizational models can be employed to effectively manage investment risk. OPERS’ approach is part of a continual, evolutionary process toward perceived best practice, and focuses on the adequacy of people, process and structure. OPERS is focusing on the development of a dedicated, fund-level risk oversight function (without involvement in the direct management of assets). This alignment provides: A targeted business group with reduced conflicts of interest relating to asset management; An additional, discrete layer of risk control; Improved transparency and focus on risk management; A separate channel for escalation of risk issues. OPERS’ internal risk management approach is further supplemented by Investment Compliance, Internal Audit, independent auditors, advisors and consultants to form a comprehensive ―governance, risk, and compliance‖ framework. Page 13
Ohio Public Employees Retirement System 2011 Annual Investment Plan Expected Asset Growth FUND STRATEGIES Defined Benefit Fund The table below summarizes Staff’s estimate (base case) of market value and ranges for the Defined Benefit Fund at December 31, 2011. Pessimistic and optimistic cases are also provided for comparison purposes. Defined Benefit Fund 2011 Expected Asset Growth Estimated Market Values, Returns and Cash Flows Pessimistic Base Optimistic Case Case Case 12/31/10 Market Value ($ billions) $60.1 $60.1 $60.1 Expected Total Return -10.4% 6.3% 28.1% Expected Investment Gain ($ billions) -$6.2 $3.8 $16.9 Expected Cash Flow ($ billions) -$2.4 -$2.4 -$2.4 12/31/11 Market Value ($ billions) $51.5 $61.5 $74.6 The anticipated market value of $60.1 billion for December 31, 2010 is derived by a smoothing projection. Asset Allocation The 2011 target asset allocation and ranges for the Defined Benefit Fund reflect an estimate by Staff of the progress made towards the long-term asset allocation targets. Also included are asset allocations for a comparable peer group as of June 30, 2010. 12/31/2010 12/31/11 Peer Asset Class Estimated Target Range Group* Public Equity 58.5% 53.9% 40% to 60% 52.4% U.S. Equity 33.5% 24.9% Mkt. Wgt. ± 5% 32.8% Non-U.S. Equity 25.0% 29.0% Mkt. Wgt. ± 5% 19.6% Public Fixed Income 25.0% 25.0% 15% to 32% 30.9% Core Fixed 12.0% 18.0% 12% to 24% 27.2% Long Bonds 6.0% 0.0% 6% to 12% NA High Yield 5.0% 5.0% 2% to 8% 2.7% Liquidity 2.0% 2.0% 0% to 4% 1.0% Alternatives 16.5% 21.1% 8% to 30% 16.7% Private Equity 5.6% 7.1% 0% to 14% 8.6% Real Estate 8.8% 10.0% 0% to 14% 6.4% Hedge Funds 1.3% 2.4% 0% to 5% 1.7% Opportunistic 0.8% 1.6% 0% to 3% NA Total Defined Benefit Fund 100.0% 100.0% 100.0% *The asset allocations are derived from the organizations in the Peer Group Comparison section on page 11. Page 14
Page 1 and 2: Defined Benefit Fund Ohio PERS Inve
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Page 34 and 35: 2011 Appendix A
Page 42 and 43: 2011 Appendix B
Page 52: 277 East Town Street Columbus, Ohio

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